Given energy markets’ newfound volatility and the range of exposures that global energy firms must deal with, the reactive, reporting-oriented nature of transaction management practices is in need...
The Nation's Grid Chiefs: On The Future of Markets
Exclusive interviews with the CEOs of five regional transmission systems.
leave to the policymakers to make the final decision. No amount of stakeholder process is going to reach a consensus.
For example, look at economic demand-side response. There was no way that the competitive markets, which have a competitive advantage by not having that, were ever going to vote to have it. So somebody had to say it’s in the public interest. Things have to get done. That’s the value of an independent RTO with decisional authority.
Fortnightly: And this somewhat muddy process won’t leave you open to worries that some market participants have undue influence?
Harris: First, before something gets effectuated, it has to be approved by FERC. Second, if members feel that the board is out of hand, they can dismiss the board. Two or three members of the board are up for re-election each year. Third, it also shows why ultimately the corporate form needs to mature to become more normal, the way normal commodity trading works, the way more normal industries work. I think RTOs and ISOs are transitional corporate forms.
Fortnightly: Does that mean that we’ll see an RTO issuing an IPO one of these days, so we can buy stock in PJM?
Harris: I won’t see that in my lifetime. But I do think it’s a fair statement—I don’t think anyone would disagree—that as a corporate form, we don’t have all the alignments between the assets, the owners and the accountability. We have to depend on very complicated, convoluted stakeholder processes for decision-making. That isn’t a long-run sustainable model. Look at PJM. We’re on our third corporate form. But it was never intended to be the end state.
Fortnightly: Do you foresee any consolidation in RTOs? Do you think we’ll have more or less in 10 years?
Harris: I definitely think you’ll have more. Let me give you an example.
With the expansion of PJM, because you have a better economic dispatch, the heat rate goes down. We saved over $500 million last year. And now quantify what that means this year, with the higher gas prices.
Then look at what happened with our demand-side programs. There was $600 million in savings during one peak-demand week and it only cost us $5 million. Now I want our staff to take that $600 million and convert it to pounds of CO 2 or barrels of oil for electricity that wasn’t generated. This is a huge public policy good.
Fortnightly: Have you thought about television advertising?
Harris: I don’t have the budget. But we do have a huge energy problem in this nation that needs to be solved. The PJM region, by itself, is about 8 percent of the North American gross domestic product. So what we do has a huge impact. If we could have the entire nation involved in security constrained economic dispatch, with 12 RTOs, the savings would be huge.
But now let me flip the coin to the other side, and tell you what the problem with markets is. First of all, we’re not going to have the “standard market design.” Everyone agrees with